Obama says Republican budget just helps the rich. Is he right?
While the House and Senate GOP budget plans are short on details, it's clear that spending cuts will be steep, probably including lower spending on education and the social safety net.
Washington — Even as congressional Republicans pursue deficit-cutting budget plans, President Obama has been quick to dismiss the new proposals as failing to meet the crucial goal of shoring up America’s middle class.
“Their budget doles out even more to those who already have the most, makes massive cuts to investments that benefit all of us, asks middle-class families to foot the bill,” Mr. Obama said in a Cleveland speech on Wednesday.
The Republicans in charge of Congress clearly disagree. Their budget plans passed out of House and Senate committees Thursday on straight party-line votes.
So, when Obama says the proposals in Congress would merely pave “a path to prosperity for those who have already prospered,” is he on the mark?
The short answer is that, although it’s hard to be too definitive about a plan that’s lacking in detail, the president appears to have good cause to bark up this tree.
Even some of the Republicans who are potential leading contenders for the presidential nomination in 2016 acknowledge the deep economic anxieties that mainstream Americans feel. Former Florida Gov. Jeb Bush is focusing on the “right to rise,” in a nod to the goal of upward mobility.
Yet in the GOP fiscal plans, which now go before the full House and Senate, the middle class is not front and center. Instead, the plans emphasize the goal of getting annual federal deficits down to zero by a decade from now. They provide little detail on what the spending cuts and tax reforms to reach that goal are – let alone how those changes will affect middle- or working-class families.
What Republicans have signaled is that entitlements are on the block, including an overhaul of Medicare. Both the House and Senate plans call for more than $5 trillion in deficit reduction over the next 10 years, including a proposal to repeal the Affordable Care Act. That means cutting spending on Medicaid and on Obamacare subsidies, which could leave millions of Americans without health insurance.
The Republican budget doesn’t flesh out promised policies to replace the ACA. (Some in the party have proposed tax credits to help people buy insurance, but no money is budgeted for such a plan.)
On the tax front, it’s possible that reform plans could avoid showering new tax breaks on the rich, but Obama’s skepticism appears justified by recent history. The Bush tax cuts of 2001 and 2003 served up savings heavily favoring high-income households. And more recent Republican proposals have been open to criticism on this same front.
“While the tax component [of the House budget] is less detailed than the tax proposals in past House budgets, the information it provides strongly indicates that the plan would juxtapose deep spending cuts primarily hitting low- and middle-income people with tax changes likely to heavily favor people at the top of the income scale,” writes Chuck Marr, a tax policy expert at the liberal Center for Budget and Policy Priorities in Washington.
At a minimum, Republicans have a lot of dots still to connect for them to refute the Obama line of attack.
The main argument in their budget plans is that the streamlining of government – lower taxes, more efficient spending, and lighter debt burdens – will invigorate the economy for all Americans.
If that plays out, it may be a case of short-term sacrifice for benefits that come in future decades.
The nonpartisan Congressional Budget Office supports the idea that lower federal debt would strengthen long-term economic growth, by leaving “more funds available for private investment.” But in the short run, the CBO says deficit-cutting efforts tend to be a drag on growth. Even by 2025, the overall effect of the Republican plan would boost per-person output by only about 1.5 percent, the CBO estimates.
By 2040, though, the estimated gains in per capita economic activity would average a more robust 7 percent.
“Our budget calls for fundamental tax reform to help grow the economy and create jobs with a tax code that is simpler and fairer,” the Republicans on the House Budget Committee say in a fact sheet.
Both political parties agree that tax reform could give a modest boost to economic growth.
One detailed tax reform plan, issued last year by Rep. Dave Camp (R) while chairman of the House Ways and Means Committee, took pains to be distributionally neutral – meaning that in simplifying the tax code, it wouldn’t allow the rich to pay a lighter share of US income taxes.
Although not everyone thought that Representative Camp's plan went far enough on fairness, it at least showed that conservative tax reform can be mindful of effects on different income groups.
Republicans can also point to their emphasis on deficit reduction as a move that would help the whole economy, not just rich people. The idea is to put the national debt on a downward path (as a share of economic output), enhancing the nation’s fiscal health. Without such efforts, weathering unforeseen emergencies such as a war or deep recession would be considerably harder to navigate.
But the spending cuts implied by Republican budgets would be steep, imposing costs on ordinary Americans in the form of lower federal spending on things like education and the social safety net.
Many of the details of where those cuts will come have yet to be determined. On education, the House draft, for example, freezes Pell Grants at $5,775 for 10 years. On welfare programs, the Senate plan outlines federal spending declining by 3.3 percent a year, compared with a current-law projection of 3.5 percent annual spending increases.
Republicans say the cuts can be done in smart ways (consolidating duplicate programs or pushing others to the state level) so that public needs are still met.
Critics of the Republican approach say it’s fundamentally flawed to try to balance the budget entirely with spending cuts, especially at a time of rising burdens on entitlement programs to cover aging baby boomers.